The dilemma of operators: WeChat in front and Apple behind

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Recently, there has been a lot of discussion about the issue of operators increasing speed and reducing fees. However, we found that the reason why operators are accused of lacking sincerity in increasing speed and reducing fees is that domestic operators have always relied on selling traffic as their core profit model. It is painful for anyone to make changes to the core profit. At present, the relatively single profit pool system of operators is facing multiple shocks. The SMS business continues to decline, and the Internetization has not yet achieved results. The crisis is deepening. Looking back, what threats are operators facing so far?

WeChat is a variable factor that constantly stimulates the nerves of operators

For operators, the most direct threat is obviously the substitution effect of OTT. In fact, there is no need to use data to explain the impact of China Mobile's SMS business on OTT businesses such as WeChat. As early as January 2013, the SMS business of domestic operators was still growing rapidly. By November 2014, the proportion of SMS business in the total volume dropped to 47.9%. As of April 28, 2015, the first quarter financial reports of the three major operators in 2015 all showed that the net profits of the three companies were declining year-on-year. The substitution effect of OTT business on traditional communication business continued to deepen, while voice and SMS business continued to decline. At present, the complete community relationship of IM+SNS+OTO built around WeChat has been completed, and the content ecosystem of WeChat's upstream and downstream industrial chains has taken shape. At present, WeChat's impact on operators' SMS business appears to be, but in fact it is to slowly force operators to the middle and lower levels of the industrial chain.

On the other hand, WeChat is constantly changing from its functions to its positioning. Its every move is irritating the operators. With the launch of WeChat Phone Book last year, the operators were constantly challenged. The essence of WeChat Phone Book is to further cover the operators' platform "sphere of influence" through the gimmick of free calls. Although free calls still need to go through network traffic, they are compressing the operators' control over users. We have seen that China Mobile has been sticking to its core business of communications, and the reform of its business to the Internet has not made any progress. Its platform's absorption power and control over users are further weakened. Tencent's free backbone communication network is gradually being deployed in major cities, and the ecological system derived from WeChat social networking is continuously strengthening, becoming an uncertain variable factor for operators. Although WeChat cannot shake the fundamentals of operators' communications, any functional changes related to the communication system introduced by WeChat in the future will continue to irritate operators.

Will tower companies become the bottleneck that hinders the future development of operators?

As mentioned above, the growth of OTT business has greatly impacted the operators' SMS, voice calls and basic information services. The decline of this part of the business has directly led to a decline in the operators' profit margins. Therefore, the operators' profit demands for traffic business have increased, especially in the 4G era. Therefore, the operators have higher requirements for base station density, and reform is imperative. Therefore, last year, the three major operators began to plan for third-party institutions to undertake tower construction and other businesses. In July 2014, the three major operators jointly signed the "Initiator Agreement" to establish China Communications Facilities Services Co., Ltd. ("Tower Company") in cash. But on the other hand, Tower Company may also become a hidden threat factor for operators in the future.

The purpose of establishing the tower company is to promote the "separation of network and industry" and avoid the duplication of base station construction. But the key to the problem is that operators must rent tower companies as resources, and there is only one. This leads to the loss of the right to speak for the construction of base stations by operators. As independent enterprises, tower companies must be responsible for their own profits and losses. In addition, their profit-seeking nature leads to the priority of base station site selection and tower construction often based on profit factors. However, due to factors such as the different network technology standards of telecom operators, the site selection of base stations and the construction of towers have a significant impact on the user experience in the areas covered by their networks. At the same time, as mentioned earlier, operators are not allowed to build new towers and passive systems, but can only rent them, so the progress of tower construction by tower companies directly affects the development, user experience and survival of a certain operator. Therefore, the existence of tower companies, the weakening of operators' control over base station site selection and towers, and the subsequent work of tower companies will become new threats to operators.

NFC payment has been weakened by Apple, UnionPay, Internet giants and other forces

Speaking of the weakening of user control, NFC payment must be mentioned here. The industry knows that in China, Alibaba and Tencent are both pushing offline payment systems to strengthen their respective spheres of influence. In foreign countries, Apple is currently vigorously promoting the introduction of Apple Pay in China, planning to use NFC to allow Apple users to pay directly with their mobile phones when purchasing goods through Apple devices, simplifying the payment process and user experience, with the aim of further improving the radiation range of Apple's software ecosystem and user stickiness, thereby controlling users.

However, controlling users through NFC payment has always been a concern for telecom operators. China UnionPay has cooperated with the three major domestic telecom operators for many years to promote NFC payment mobile phones, but it has not made any progress. Recently, Apple is planning a cooperation plan with domestic banks, Alibaba and other institutions to try to promote the rapid implementation of Apple's mobile payment system in China. From a domestic perspective, UnionPay and operators have been competing for the dominance of domestic NFC mobile phone payments. The reason for the tug-of-war is that neither side can gain an absolute advantage in the competition of strength.

In Japan, the top operator NTT DOCOMO is leading the promotion of NFC payment. NTT DOCOMO has the right to customize mobile phones and occupies the mainstream mobile phone users in the market. Almost all mobile phones sold in the Japanese market are customized by operators, which can quickly add NFC payment modules to the mobile phones of the vast majority of users. However, China Mobile in China does not have such control. China Mobile and UnionPay both have their own mobile payment ecosystems. Although China Mobile has customized mobile phones to control user payment terminals and third-party payment platforms, the user base and influence of its payment and e-commerce platforms are weak. UnionPay has mobile phone external devices and POS card terminals, and has a relatively strong third-party payment platform. China Mobile obviously lacks the ability to control the upstream of the industry chain. In the list of cooperation for Apple to promote Apple Pay in China, operators were excluded, which to a certain extent also reflects that the influence and voice of operators in the entire NFC payment industry chain are weakening.

Apple's ambition is to promote the globalization of its own NFC payment. Although in each country, Apple must give in to the original interest system of the local area. For example, it was previously reported that Apple cooperated with China UnionPay but there was no progress. Apple also gave up its usual strong attitude when entering China, saying that it was only responsible for the user experience and payment security of terminal payment, and the control of its industrial chain must be in the hands of domestic partners. But in the final analysis, the speed of Apple's future coverage and subsequent landing strategies are difficult to predict. We see that another threat factor for operators from Apple is that Apple's technical threat of reverse subversion to operators in various places still exists. For example, it was previously reported that Apple would implant its own SIM card in the next generation of iPhone, which is also a hidden impact on operators in the future.

From the above analysis, we can see that Apple's purpose of developing NFC is to further expand Apple's ecosystem and consolidate its user base, which threatens not only the interests of UnionPay, but also the interests of operators. In the eyes of operators, the main application scenario of NFC technology is mobile payment, which may become a standard feature of mobile phones in the future. With the maturity of mobile payment technology, the development of customized mobile phone near-field payment will help operators find new business models and profit models. But on the other hand, the original payment ability of operators based on phone bill payment is gradually becoming less attractive to users, and the gap between operators and Internet giants in the operation of Internet products and content or mobile e-commerce and online payment layout is gradually widening. The voice of domestic operators in NFC payment is being weakened by Apple, UnionPay, Internet giants and other forces, and their conception of developing new business based on near-field payment is also gradually drifting away from the current situation and ideal.

Impact of Apple and Google Ecosystem

In the final analysis, the impact that operators have encountered has been revealed since the beginning of the smartphone era. Since smartphones were determined to be the two major ecological camps of Android and iOS, the traditional business of operators has gradually begun to decline. The reason is that the ecosystems of iOS and Android extend from hardware terminals to operating systems, e-stores and software platforms, and have deviated from the pure communication business competition pattern of the traditional mobile phone industry. The real battlefield has risen from communication networks and mobile phone hardware to operating systems, third-party killer applications and software ecological layout battles. Having enough users and a complete hardware and software ecosystem determines who has the right to speak and advantages in the industrial chain. Due to the lack of ecological system construction derived from communications, operators are rapidly losing their power, and their original advantages and profit structure of the industrial chain have been gradually deprived, and pipelineization is inevitable.

In addition, as operators are being squeezed by various forces to cover their coverage, their profit sources are gradually becoming single. For example, traffic business is still the core profit source of domestic operators, which often becomes an invisible crisis for platform companies. The platform coverage strategy and free strategy of Internet giants will gradually erode the profits of operators and guide the formation of user habits, thereby forcing operators to adopt a more reasonable and transparent price system for traffic charges. Otherwise, it will cause user resistance. For example, when the three major operators released their speed-up and fee-reduction plans, many users also complained about the lack of sincerity, which also triggered a series of public opinion backlash.

However, the crisis of operators is not only external, but more internal. From the integration of three networks, to the establishment of tower companies, to the reduction of broadband fees and speed increases, most of the changes of domestic telecom operators are driven by external forces and public opinion, revealing the rigidity of their internal reform system. What operators need to do is obviously not just to verbally call for de-telecom, but also to develop peripheral auxiliary businesses based on the core business of communications, that is, to strengthen the backbone of the main business with the profits of diversified peripheral auxiliary businesses, transform to the Internet and platform, and then disperse their own profit pools and change the single profit source profit model.

Reducing reliance on its original success path and shifting from traffic business to Internet services is easier said than done for operators who are stuck in the dilemma of rigid internal system and gradual loss of talent. For operators who are used to sticking to the old ways, the business models and speeds of Apple, Google and Internet giants coming from the flanks are often beyond the imagination of operators. The future of operators is destined to be full of ups and downs.